The catalogue and online retailer is still a solid long term bet, but after a
strong run, now is not the time to buy, says Questor.

N BROWN, the FTSE 250-listed retailer, saw its shares slump by more than 5pc as it announced results for the first half ended September 1. Investors shouldn’t be too concerned by the correction as it looks more like profit-taking after an exceptionally strong run rather than anything more sinister.

The home shopping group sells everything from homeware and shoes to fashionable clothes. The group’s reputation was built on catalogues of clothes in bigger sizes for bigger people; the current poster boy for the company is former cricketer Andrew Flintoff and brands include High & Mighty, Jacamo and Simply Be.

The company also has a new chief executive; Angela Spindler succeeded Alan White, who stepped down in July after 25 years with the business including the last 10 as chief executive. Ms Spindler was managing director of Debenhams and has also held senior roles at George at Asda.

The weakness in the shares looks like jitters over the handover of the top job. There was some disappointment with internet sales, which generate more than half of group revenue. Online growth slowed from 15pc at the start of the year to 13pc at the end of August.

Bad debts, or customers not paying for orders, also increased to around £36m, from £30m at the same stage last year. Ms Spindler said the increase in bad debts was a short-term impact due to the growth in new customer accounts, but that should fall as new accounts become more mature.

The unseasonably warm weather has also meant sales of coats and scarves have been slower than expected, which was offset by good growth in shoes and products for the home.

N Brown is still profitable. First-half sales growth accelerated to 8pc, from 6pc in March, giving sales of £410m for the 26-week period to the end of August. Selling and administration costs increased 6.3pc, and distribution costs increased 7.9pc so, with sales rising faster than costs, adjusted pre-tax profits for the first half increased 5.9pc to £48.4m.

Management underlined its confidence by increasing the interim dividend by 4pc to 5.67p, payable on January 3, and ex-dividend on December 4.

Ms Spindler has two areas she believes are ripe for further growth. The US currently contributes around 1pc of sales, and growth here was interrupted in the first half as customers were initially unhappy with the service. “Nobody should be blasé or complacent about growth in the US but we have solved the issues and are encouraged by the customer feedback,” Ms Spindler added.

The other area is the expansion of the company’s high street presence. A further two stores are to be opened in Leeds and Derby by the end of October, with targets eventually to increase this to 25. The stores currently open made sales of £3.4m in the first half and losses of £1m, but the company said they have now broken even on a store by store basis.

N Brown shares have more than doubled over the last two years, soaring by almost 40pc this year alone. Consensus estimates expect full-year pre-tax profits for February 2014 of £104m, giving 29.7p in earnings per share. That leaves the shares looking a little bit expensive, trading on 16.3 times earnings, falling to 15.5 times next year.

The strong run also makes the dividend less attractive as the forecast yield is now 2.8pc. N Brown is a good company with good prospects, but not at this price. Hold.